Apple posted its second straight quarter of double-digit percentage growth in iPhone sales. The company also reported net income of $7.7 billion, slightly more than the $7.49 billion that analysts surveyed by Thomson Reuters expected, on revenue of $37.4 billion, just under the $37.98 billion the analysts had expected. Per-share profit came in at $1.28, compared with the expected $1.23, a number adjusted for Apple’s recent 7-for-1 stock split.

Apple holds a conference call at 5 p.m. ET. We’ll run through the earnings report and are live-blogging the call. You can listen in, too, as Wall Street’s finest quiz Cook & Co. As always, tell us what you are thinking in the comments.

Thanks for stopping by the live blog. Apple reports some time after the close of New York trading, and its conference call doesn’t begin until around 5 p.m. ET. I’m watching the wires for when the earnings cross.

I’d love to hear your thoughts about the report and call. (Samsung-Android-Apple-iOS flamers need not apply.) Look for the earnings statement here. You can listen to streaming audio of the call here. (Per usual Apple constraints, mind your version of iOS, or QuickTime on Windows, etc.)

The Journal’s Daisuke Wakabayashi worked through some of the key things to look for this quarter, which is usually a quiet one for Apple. You can read them here.

The biggest factor for Apple never changes: it’s the iPhone. That’s the single most important product with the biggest impact on revenue. And in that sphere, Wall Street will pay attention to Apple’s gross margin — how much revenue comes from sales after you account for manufacturing costs.

As a general rule of thumb, products costs more to make early in their life cycle, and then companies find ways to save money by refining the manufacturing process over time. Last quarter, Apple pointed this out as a counter to a drop in the average selling price of iPhones. (Investors love seeing that rich luxury premium on those iPhones.)

Analysts are also going to look at iPad sales. Last quarter there was a sizable drop. Apple said the sales were still better than it expected, even if they missed Wall Street’s forecasts. CEO Tim Cook blamed analysts, saying they didn’t properly account for an inventory buildup. (There was a lot of talk about “channel inventory.”)

Even so, iPad is one of Apple’s hallmark products. During last quarter’s conference call, Cook said he ultimately expected tablets to take over the PC market, and for Apple to be in the thick of it.

Microsoft reports earnings today too, but it’s call doesn’t start until much later — 5:30 p.m. ET. That one should be interesting if Wall Street presses CEO Satya Nadella for some clarity on the job cuts and memos from last week.

Just to level-set expectations: These earnings call are about the numbers. Profit, margins, forecasts, revenue and whatnot. It’s not a place where Cook will casually mention that Apple is releasing, oh say, a smartwatch in September. Cook will likely get asked at least one question about new product categories, and he will say how excited he is about the pipeline.

But if you have a hankering for some crystal ball stuff, here’s a post we just published on Apple being granted a patent for a smartwatch device. A good question would be about how many of the new iPhones Apple thinks it will sell.

We interrupt this Apple live blog with news from the Journal’s Shira Ovide:

Microsoft Corp. said its quarterly profit declined 7.1% as the company absorbed a financial hit from acquiring Nokia Corp.’s money-losing cellphone business.

She goes on:

The negative impact from Nokia overshadowed continued strong performance from sales of Windows, Office and other software to companies. Revenue from what Microsoft calls total commercial sales rose 11% to $13.48 billion.

Back to Apple: Cook often touts Apple’s wins in the enterprise market, dropping the names of companies that are using the iPad and talking up how many Fortune 500 companies have adopted the tablet. I wonder how many analysts will ask about the announcement Apple made with IBM. Yes, there will be consumer apps and Apple Care, but I’m curious if Apple has any sense of how many iPads it thinks IBM can sell.

Before you ask: No, I don’t think Dre shows up on the call, though that would be awesome. (“I’ll take this question about ‘channel inventory’ ” …) I would like to hear someone ask how big a role Apple has planned for Dre and Jimmy Iovine and the Beats hardware. Is Iovine an expensive ambassador to the music industry? Something more?

We are a few minutes from 4:30 p.m. ET, so expect the results soon. Apple’s stock finished regular trading at $94.72, up a little less than a percent. In after hours activity, the stock tacked another 25 cents or so. No big moves.

Revenue from operations in Greater China — that includes Hong Kong and Taiwan — was up 28% to $5.94 billion. This market represents a huge opportunity for Apple, which not too long ago inked a deal with Chinese carriers to sell the iPhone there.

What did we learn? The iPhone revenue spigot continues to run wide open — this before the company is set to make significant changes to the lineup by introducing two phones with bigger screens. As far as Wall Street and its forecasts, the results were hit and miss. The iPhone unit number was shy of forecasts, as was the revenue. Net income and per-share profit, though, topped forecasts.

The iPad remained a dour note, which fell for the second-straight quarter, and it will be interesting to see how Cook explains the performance. Apple said it sold 13.28 million iPads, down 9.2% from a year earlier and shy of Wall Street had expected.

Mac computers, while a smaller part of Apple’s business, were up 18%. That’s just an interesting number if you consider how often “post-PC” has been thrown around in the past few years. PCs of all stripes are enjoying a little renaissance (driven in part of businesses finally having to trade up from Windows XP machines, but still.) The Mac chugs along too.

The Mac even got a shout out in the customary CEO praise paragraph in the press release:

“Our record June quarter revenue was fueled by strong sales of iPhone and Mac and the continued growth of revenue from the Apple ecosystem, driving our highest EPS growth rate in seven quarters,” said Tim Cook, Apple’s CEO. “We are incredibly excited about the upcoming releases of iOS 8 and OS X Yosemite, as well as other new products and services that we can’t wait to introduce.”

Apple’s stock tipped lower after hours, down about a half-percent. That iPad number is going to trouble investors. Last quarter, Cook was quick to remind people how alarmingly fast the product grew — faster than the iPhone, even. He was right, of course. But there’s been a sense of fear that people are starting to realize the limitations of a device that isn’t quite as efficient as a PC and not as portable as a smartphone. (That spells “niche.”) I don’t really think a smartwatch is going to replace this kind of product category.

Here’s the initial cut at the earnings article from Daisuke Wakabayashi. He points out the wide range for the revenue forecast at $3 billion, and that is below what analysts were thinking. Here is an excerpt:

In the past few years, the June quarter has been the slowest for Apple as the company gears up with new products ahead of the year-end. The technology giant is banking on an expected new product push of larger iPhones and a series of smartwatches before year-end to reinvigorate earnings that have flattened after more than a decade of remarkable growth, raising concerns that Apple is losing its innovative touch.

Apple said profit in its fiscal third quarter was $7.75 billion, up 12.3% from $6.9 billion in the year-ago period. Apple’s earnings per share rose to $1.28 from $1.07, adjusted for the company’s recent 7-for-1 stock split and lifted by the company’s stock repurchase program, which decreased the pool of total shares compared with a year earlier.

Given the iPad number and Apple ratcheting down Wall Street’s expectations on revenue for the current quarter, the stock is holding up fairly well considering it had a run-up of some 25% since the last earnings call. Down less than a half-percent now in after-hours trading.

He points out that Apple introduced more than 4,000 APIs — this is wonky talk to basically say that Apple’s software ecosystem, known as being locked down, is opening up so developers can have their apps work better with it.

Still going — if you really need a refresher on all that WWDC stuff, read this. He just mentioned the IBM relationship, and his statement really did go from regular language to the worst kind of corporatespeak — “ew class of mobile business solutions to enterprise customers” – was that on purpose?

Just like last quarter, Cook said iPad sales met Apple’s expectations, but not “many of yours.” He cited a reduction in channel inventory, and said there were weaker markets around the world. He didn’t say which. Apple, he said, is more focused on surveys showing how happy people are with their iPads and how people who are going to buy a tablet say they want to buy one from Apple.

Not counting Beats, Apple had 29 acquisitions since the beginning of the year — 5 since the end of the March quarter. Cook, before handing over the mic, cites the “incredible pipeline of new products and services” that Apple just can’t wait to show you.

Maestri has the mic now. He mentions the quarterly record for revenue at $37.4 billion, which was at the high end of Apple’s guidance. And despite a reduction in inventory in China for iPhone and iPad.

Maestri said iPhone sales were at the high end of Apple’s expectations despite the “new product rumors” that Apple thinks held some people back from making purchases. Hearing that, you have to think then that Apple expects a gush of pent up demand when the next phones come out. (Those rumors: a 4.7-inch and 5.5-inch versions, likely announced in September.)

Maestri said iPad sales grew in developing markets — Apple was very excited about the performance of BRIC countries. Maestri mentioned the Middle East, China and India in particular. Apple reduced its iPad channel inventory by 500,000, he said.

He has moved on to Mac, which was driven by the laptops. Double-digit growth in the U.S., Canada, Mexico, China and many other countries, he said. He points out the growth comes amid a contraction of the PC market.

Maestri moved on to the financials: $137.7 billion, or 84% of Apple’s cash, is offshore. Cash flow was $10.3 billion. Successful debt offerings — most of this was in the initial press release. Beats deal expected to close this quarter. On to the questions:

Question: Margin above guidance for the third quarter in a row. Why? Maestri said it was surprising to Apple, too. The cost improvements that came in were stronger than Apple had been anticipating. But Apple still is guiding that margin down for the fourth quarter, for all the same reasons it expected in Q3, leverage issues, mix. But Q4 also has pipeline transition costs. What rumors!

Next question is thoughts on the tablet market. Cook’s answer is nearly identical to how he started it last quarter — let’s back up and marvel at our awesome sales in a product category we pretty much created. And just like last quarter, he says he is exciting that so many people — in this case, more than 50% — of iPad buyers are first-time buyers. Education share is 85%. Fortune 500 gets a mention, at 99% share.

Cook says that the iPad penetration in U.S. business is low, only 20%. That was part of the thinking behind the IBM partnership, he said. The positive in that, then, is the upside potential. He cites the crummy apps available. “I believe the opportunity is huge,” Cook says.

The theory, Cook says, that tablets will surpass PCs is still in tact. But he says Apple needs to give the trajectory a kick in the pants, and that’s the deal with IBM, a “first-class company.”

Cook has a lot to say about iPad. He continues about a “bifurcated” market — developing markets are doing well, but the U.S. was weak. Yet, Macs did so well in the U.S. Higher-education, perhaps, is still notebook-oriented. That’s another thing Apple is seeing, he said.

A question about China. The overall environment, Cook said, was surprising — well past what Apple thought. China came in at 26% of revenue growth – substantial strength. iTunes/software, which has the App Store, was the strongest growth story for Apple in China. Cook is signaling more growth ahead as better carrier technology rolls out.

Back to gross margin. Why is the guidance so much different this year? Maestri says that there are different things that impact margins year to year — foreign currency fluctuation, for example. And, um, product cycles — though he won’t get into specifics. But this isn’t the same cycle as a year ago, Maestri said.

What impact does the trade-ins and Apple’s pricing have on iPhones? Cook challenges the questioner that iPhone sales are flat in Europe. After countering that stat — it’s not really clear Cook and the analyst were talking about the same exact regions — Cook says the cannibalization factor of trade-ins is low. Apple products have high resale value, he says, and that means a large ecosystem. If someone can get into the Apple ecosystem, they are likely to buy more Apple, Cook says. So he views the trade-ins as a net positive.

Next question is about Japan, where the business was flat. Cook reiterates that a one-two punch of higher taxes — a value-added tax — and regulations has cut into Apple’s business. Cook doesn’t expect much of a market share change ahead. Tax change type issues usually creates a rush to buy ahead of the change, a pause, then a resumption. That’s what is happening, Cook says.

Next question is about the three tiers of iPhones, including the iPhone 5C. Cook says that if you compare this year’s mid-tier — the 5C — with last year’s midtier — the 4S — it was the highest growth in the just-finished quarter. Apple is happy with that, Cook says.

Hold on to your seats: The next question is about commodity pricing. Basically, if Apple has to pay more for metals and memory chips and whatnot, it eats into profit margins. Cook says pricing on some of these things declined, and that their historical declines are factored into margin guidance.

The next question was about new carrier upgrade plans. No subsidies for expensive products could hurt Apple. Just like last year, Cook says those plans also allow people to upgrade faster, which Apple sees as a positive. (So, if Apple announces a big-screen iPhone this year, someone stuck in year one of a two year plan could rush out and buy it if they want.)

Next question is about Apple going against its grain with two big deals — Beats and the IBM partnership. Is Apple changing? Cook concedes that was unusual. But with Beats, Apple got a rare set of talent, Cook said — and a fast-growing business in the hardware — and with IBM there was a partnership that made sense. As he always does, Cook says Apple doesn’t let money burn a hole in its pocket and will make deals that make sense. It’s never a goal to spend X dollars or acquire Y companies.

A follow-up on the IBM deal: Is this an Apple play for Big Data? Cook falls back, saying a win for Apple is to drive that 20% business penetration number cited earlier to 60%. “The walls would shake,” he said.

A question on enterprise: Will Apple change how developers can sell apps to businesses? Apple says no change with those rules. The idea there, I think, is that Apple could inject itself into that piece of the market and siphon off revenue. But Cook shakes his head, no, right now Apple just wants that business penetration.

That’s the end of the call. The big takeaway for me was how iPad, how it is lagging behind in developed markets, and the admission that it isn’t penetrating the business market as Apple hoped. The talk about the IBM deal as a solution was pretty eyes open. Aside from the call with Wall Street, Cook addressed iPad in an interview with the Journal. “This isn’t something that worries us,” he said.

At least as far as Wall Street is concerned, the other shoe that dropped was revenue guidance. Apple has a wide range of $37 billion to $40 billion — but however wide it was short of the $40.44 billion that analysts were expecting. As the Journal’s Daisuke Wakabayashi reported, Cook said the wide range reflects a “lack of visibility.” You can’t predict how “rumors” will affect people’s purchasing, he said.

So what is he suggesting? All this talk of new iPhones — the iPhone 6, as people are calling it — might put a damper on sales. People who want to buy a phone might hold out and wait for the new one (especially if it has a bigger screen.)

But it is a little muddier than that. The current quarter wraps up at the end of September. If Apple starts selling new phones toward the end of the month, as it usually does, some of those new-phone sales would sneak into the current quarter. It’s just impossible to say how many.

I’m no forecaster, but if Apple manages to get two new big-screen phones out the door early enough in the month — and Apple has already ordered up a record production run — then it is feasible Apple surprises on the upside. If it does too well, though, it steals sales from the next quarter; the question then is how many people who had been happy with older phones like the iPhone 4S or 5 are going to lunge for the bigger screen.

Smart point by “Ray,” that an average household probably has one iPad vs. many smartphones. I’d throw in that people probably don’t upgrade the iPad as frequently. That would explain the initial bumrush of buyers and the current tapering off. (This is conceivably why an iPad Mini is even around — people might want the big one for the couch and the little one for the satchel).

What could Apple do to get those early buyers to upgrade? I was going to point out that it’s even more challenging for early adopters like schools, that might not have a budget to replace units. But a recent comment from ”Lenny” captured it — he has a first-gen iPad that works well for him. Why upgrade?

Comments (5 of 15)

Being cautious for Sept quarter seems smart in view of new I phones. The release date will probably be late Sept so as not to hurt 1st quarter. The order for new phones is encouraging as well as what I understand is pent up demand. Sitting on older tablets seems smart for now unless a significant breakthrough is made. We will have to wait and see what is in the "best pipeline ever."

6:14 pm July 22, 2014

naiah wrote:

With the new iPhone 6 & iPad Air 2 coming out I better sell my old iPhone & iPad before the value of it drops. I usually search 8-13 different sites to find the best offer, but I just found this company that compares all the buyback companies in one spot, it’s called RecomHub.

It's like Kayak but for electronic devices that you all the offer in one spot.

5:56 pm July 22, 2014

Lenny wrote:

I am still using my 1st generation iPad. Yest, it is a bit slower, but otherwise working great. I do not see a reason to buy a new one.

5:44 pm July 22, 2014

JG wrote:

Apple has issued an injunction against the fruit, claiming copyright infringement. Apples are considering changing their names to AirPotatoes. A final decision is forthcoming.

5:27 pm July 22, 2014

Jeremy wrote:

When are you going to give your company a real name and not after a fruit?